Jump in flood insurance rates could have ripple effect

Real estate experts worry that the new regulations could put a damper on the rebound in the market and Florida's economic recovery.

JOSH SALMAN

Southwest Florida's real estate industry is bracing for sharp increase in flood insurance rates that many fear will crimp home sales to northern retirees and possibly weaken the recovering economy.

Agents say deals for older houses along the water already are falling through because of the new insurance regulations slated to take effect in October.

There are growing worries that the increased costs will have even broader ramifications down the line.

The higher premiums come as the price of real estate already is rising at its fastest pace in nearly a decade. If the costs of owning a home here continues to mount, many worry that it could redirect buyers to other popular retirement destinations.

"It's a disaster," said area real estate attorney Matt Weidner. "Values are going to plummet and home sales are going to suffer in many coastal areas like Siesta Key and Longboat because nobody will be able to afford flood insurance."

A rash of major disasters in recent years has left the National Flood Insurance Program deep in debt, with Congress enacting the Biggert-Waters Act of 2012 to reduce the program's liabilities.

The result: beginning next month, flood insurance policy holders in areas like Ohio will no longer subsidize the risky properties peppering the sandy shores of Florida.

Premiums will begin to climb exponentially for older waterfront properties, with estimates as high as 400 percent in some parts of Southwest Florida. That will add substantially to the cost of buying and owning real estate.

The looming change has left Realtors scrambling for ways to ease the impact. Some agents are petitioning Congress to delay implementation to allow for further study of the potential effect.

"It's a concern," said Clark Toole, president of Coldwell Banker's Florida division. "Will there be more homeowners who default on their mortgage? Or if homeowners can't afford this anymore, what will happen if we have a major catastrophe?"

"You look at how many homes this affects, not only in Sarasota but across the state, and it's a big reality for the real estate industry."

20 percent rise in premiums

The Sunshine State is home to 40 percent of the nation's flood policies.

There are 268,648 property owners in Florida now benefiting from flood subsidy supported by less risky areas, according to the Federal Emergency Management Agency.

There are 11,264 subsidized policies in Manatee County, 18,770 in Sarasota County and another 6,062 in Charlotte County.

About 146,440 properties in this region have at least some flood insurance coverage — or nearly 30 percent of total housing units, records show.

Beginning next month, many of those homeowners will see their annual insurance premiums rise more than 20 percent to reflect the full risk of insuring a particular property. That will come along with a new fee to rebuild the program's reserves that were depleted by Hurricane Katrina and other storms.

The 36,096 older properties in Southwest Florida whose premiums have been lower because of the subsidy will be hit the hardest. That tally is likely to climb even higher as local governments revise flood maps to include more homes in high-hazard zones during the next year or so.

The fallout could be widespread.

Florida has long focused its economy on the idea of new residents moving to the state and buying homes, a cycle paramount in this region, which has traditionally been more dependent on housing than other parts of the Sunshine State.

"This could have a devastating effect on Florida in the long term," said Jack McCabe, a real estate consultant in Deerfield Beach. "We're going to see the costs skyrocket to the point where most people can't afford to live here or would rather just go to places like Texas or the Carolinas, where they don't have to deal with this."

'Transactions falling apart ...'

A pipeline of new retirees migrating to Southwest Florida has propelled the housing market to its healthiest levels since the region began its descent into the Great Recession six years ago.

These empty nesters are among the roughly 76 million baby boomers — born between 1946 and 1964 — who are tapping into retirement funds and savings accounts to finance home purchases that they had put on hold during the downturn.

The pent-up demand has boosted the pace of homes sales by 22 percent over the year in Sarasota and Manatee counties, while lifting median prices another 19 percent, Realtor data shows.

Now, some agents now fear substantially higher flood insurance premiums will give those buyers pause and prompt them to consider areas with lower costs and fewer home-buying hurdles.

A slowdown in the housing market, in turn, could dent the broader economy: blunting consumer spending, lowering demand for construction jobs and depriving local governments of some tax revenues.

"There are transactions falling apart because of this new rule," said Jeff Leonard, a Realtor with Re/Max Anchor in Charlotte County. "Part of it is the uncertainty. Part of it is they're getting quoted such high rates."

Leonard lost a deal this month because estimates for flood insurance premiums on a home in Port Charlotte bounced from $1,000 per year to $4,500.

He says areas that will be the most impacted include neighborhoods like Edgewater Boulevard, where houses are smaller and older but line canals and other low-lying areas near Charlotte Harbor.

Typical buyers in Edgewater cannot afford higher premiums.

"The houses almost become unmarketable," Leonard said.

Although the new flood insurance increases will be slowly compounded for existing homeowners, once a property changes hands, the full subsidy will be immediately lifted.

Second homes also are expected to bear a larger burden of the costs. That is a segment of vacation and seasonal properties that make up a hefty portion of Southwest Florida's housing market.

Buyers who closed on a property deal after July 6, 2012, will be forced to pay insurance premiums based on the new rates when they renew their policy after Oct. 1. All properties sold after that date will automatically see the higher rates.

Commercial properties also will see an immediate increase.

Even property appraisers are having a difficult time fully understanding the new rule's impact.

"We really don't know what's going to happen," said Jeff Fehr, with Riverside Appraisals. "When you go to buy a house, and it could be included in a flood idea, it makes it tougher to appraise now.

"It's definitely going to have a negative impact on values."

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